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Industrial production regained momentum at the end of the first quarter, with both output and new orders increasing at a faster pace in March than in the previous month, HSBC said.

Its Purchasing Managers’ Index (PMI), a snapshot of the manufacturing economy, was up slightly to 51.3 last month from 51 in February to signal a “modest improvement” in overall business conditions, it said.

The reading pointed to a seventh consecutive monthly improvement in operating conditions. An index of above 50 indicates an overall increase.

Solid growth in new orders in March, at the strongest rate in five months, led firms to increase production for the sixth month running.

New export orders also went up last month after posting a marginal reduction in February.

Employment in the sector decreased in March, ending a seven-month period of job creation.

With inflation rising by 0.82 percent in the first quarter, the lowest rate in the past several years, industry’s input costs slowed for the third straight month.

Trinh Nguyen, HSBC’s economist for Asia, said the decline in employment and input cost deflation reflect the bottlenecks in the economy.

Vietnam is facing a mismatch between demand and supply of skilled labor, and the sluggish pace of financial sector reform is dampening consumer demand, she said.

But she said the rise of manufacturing output meant Vietnam's export-oriented businesses were performing relatively better than their rivals in other regional countries where the slowing down of China has dampened demand.

She expected the sector to continue to benefit from rising foreign investment in manufacturing, slowing input costs, and improved demand in western countries.